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Sep 24

How to build a better credit rating for the purchases you’ve always wanted

Reading Time: 3 mins

Your credit rating – also sometimes referred to as a credit score – is one of the key factors that will shape your financial life.

After all, every time you apply for a loan, credit card or other form of finance, the prospective lender will check your credit report or credit score to find out how you have previously managed credit. This, in turn, will affect your chances of being awarded the credit on favourable terms and rates.

But if you’ve checked your credit score and it’s looking a little worse for wear, or you’ve been turned down for finance lately, what can you do to improve your credit rating? Here are a few steps that will help.


Check your credit report regularly

One thing that a lot of people don’t realise about their credit score, is that there isn’t just one credit rating everyone has. Credit reference reports on you are held at the UK’s three main credit scoring agencies – Equifax, Experian and TransUnion.

Lenders use this information about you to inform their decisions when you apply for finance. So, it’s a good idea to check your report at all three agencies once a year, or before any major credit application. Since the General Data Protection Regulation (GDPR) was introduced in May 2018, it has even been free to check your credit report – the MoneySavingExpert website explains how to do it.

Keeping an eye on your credit report won’t just help you to see how you’re doing in the eyes of potential lenders – it’ll also allow you to spot any errors and have them quickly remedied to the benefit of your credit score.


Always make repayments on time

It sounds like an obvious point to make, but timely repayments aren’t only crucial to keep you from sliding into further debt. That’s because a missed or late repayment can remain on your credit file for as long as six years.

Sometimes, late payments can occur due to factors beyond your control, such as your direct debit not being set up on time. If this happens, make sure you make the payment quickly and discuss with your credit provider whether this black mark can be removed from your record.

Arranging to have as many things as possible paid via direct debit will greatly help to prevent you missing or being late with payments. And if you’re struggling and know you’ll miss a payment, talk to your lender about how they may be able to help. It’s better for your credit score to change your repayment schedule than to default or end up with a county court judgement or decree against you.


Request soft searches rather than hard searches

When comparing credit options, you’re likely to have come across references to “hard searches” and “soft searches”. These are references to different types of credit check, which is when a company looks at information from your credit report to gain insight into your financial behaviour.

A credit check will be needed when you apply for finance. However, while a hard search entails a company like a bank or credit provider performing a complete search of your credit report, a soft search is just an initial look at some of the information your credit report contains.

Crucially, a hard search is also recorded on your credit report and is visible to companies, whereas soft searches aren’t. Too many hard credit checks over a short period of time could therefore harm your credit score and hamper your chances of getting credit in the future.

It’s in your interests, then, to try to have only soft searches performed of your credit file until a hard search becomes strictly necessary. The broker CarFinanceGenie, for example, only performs a soft search when making its initial decision for those seeking car finance, and never performs a hard search without the permission of the applicant.

This practice helps prospective borrowers to avoid the circular problem of being repeatedly rejected for finance after hard searches, with each subsequent hard search further damaging their chances of getting credit at all. And of course, it could help you to protect and build your credit rating.


Get yourself on the electoral roll

Ensuring you’re on the electoral roll is one of the simplest things you can do to improve your credit rating and your chances of being accepted for credit. You can register to vote at GOV.UK at any time, not just when elections are looming or you receive a reminder.


Minimise your credit utilisation

“Credit utilisation” refers to the percentage of your credit limit that you use. So if your credit limit is £1,500, for example, and you’ve used £500 of it, your credit utilisation is 33%.

It’s best to try to limit your credit utilisation to 25% or less if possible, as companies tend to look upon a lower percentage more positively. This, in turn, will make them likelier to offer you credit with favourable rates and terms.

Some of the best ways to improve your credit score may seem mere ‘common sense’ or sensible financial management, while others are less well-known. Follow these above steps, and you will stand a much better chance of building a stronger credit rating for all of those purchases you may wish to make in the months and years to come.



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